Clarification on Gratuity and Provident Fund Eligibility for Fixed-Term Employees and Post-Retirement Hires

Dear Seniors,
I have some urgent queries related to the Payment of Gratuity Act, 1972 and the Employee Provident Fund Act 1952.

Consider the following scenario: Mr. X worked in a cooperative company (A & Co Ltd) for 30 years and retired on 31-01-2017 upon reaching the age of superannuation (60 years). He received his terminal statutory dues like PF and gratuity promptly, with a gratuity amount of approximately Rs 17 to 20 Lakhs.

Post-retirement, Mr. X joined another private sector company (B & Co Ltd) on a fixed-term basis. He was appointed on a fixed-term contract for two years from 01.02.2017 to 31-01-2019, with a total CTC of Rs. 30,00,000 per month. This contract was renewed twice, and on 01.02.2022, Mr. X was relieved from the services of B & Co Pvt Ltd, marking the end of the contract period.

Throughout the five-year period with B & Co Pvt Ltd, there were no breaks in service, as evidenced by the issuance of three standalone appointment letters. He also received a 5% increment every year.

My questions are:

1. Is Mr. X eligible for gratuity from B & Co Pvt Ltd as per the Payment of Gratuity Act, 1972, even though he has already received approximately Rs 17 to 20 lacs from his previous company?

2. Does the age and gratuity settlement from the previous company (A & Co Pvt Ltd) affect Mr. X's claim for gratuity at B & Co Pvt Ltd?

3. If Mr. X is entitled to gratuity from B & Co Pvt Ltd, the calculated amount would be Rs 15 lacs approx. We have clearly stated in his first appointment letter that Gratuity and PF are not applicable. Considering Mr. X already received a gratuity amount of Rs 17 to 20 lacs from A & Co Pvt Ltd, can he receive the full gratuity amount from B & Co Pvt Ltd, potentially exceeding the statutory ceiling of 20 Lakhs (now increased to 30 lacs)? Do we need to pay the full amount of gratuity of Rs.15.0 lacs to him or on a pro rata basis as per statutory compliance?

4. Are fixed-term contractual employees like "W" grade employees (for the position of driver or attendants) who have more than 5 years of experience in our company on a fixed-term basis eligible for gratuity as per the Gratuity act?

5. If an employee retires from the service of A & Co. Ltd. after reaching the age of retirement i.e. 60 years in 2025 and joins B & Co. Ltd., can B & Co. Ltd deduct his/her PF after the age of 60 years on his consent?

6. For a regular employee of our company A & Co. Ltd, after reaching the age of retirement, if he/she is hired on a very senior position in the same A & Co. Ltd, is it compulsory (or voluntary or mutually agreed upon between employer and employee) to deduct the PF?

7. If a person over the age of 60 newly joins on a senior position in A & Co. Ltd. on roll and gets an extension every year from the board, can our company deduct PF from his salary after the age of 60 in continuation service, if he has not withdrawn his PF from his previous company?

1. As per the Payment of Gratuity Act, 1972, an employee is eligible for gratuity if he/she has completed five years of continuous service in a single company. Mr. X's gratuity from his previous company does not affect his eligibility for gratuity from B & Co Pvt Ltd.

2. The age and gratuity settlement from the previous company (A & Co Pvt Ltd) do not hinder Mr. X's claim for gratuity at B & Co Pvt Ltd. Gratuity is a benefit provided by the company where an employee has served, and it does not carry over from one company to another.

3. If Mr. X is entitled to gratuity from B & Co Pvt Ltd, the company is obliged to pay the full gratuity amount, even if it exceeds the statutory ceiling. The ceiling is applicable to tax exemption, not the gratuity payment itself.

4. Fixed-term contractual employees like "W" grade employees are eligible for gratuity if they have completed five years of continuous service, as per the Payment of Gratuity Act, 1972.

5. As per the Employee Provident Fund Act 1952, an employee can continue to contribute to the PF even after the age of 60 years, provided he/she is still in service. The company can deduct PF on his consent.

6. If an employee is rehired in the same company after retirement, the company can continue to deduct PF if it is mutually agreed upon between the employer and the employee.

7. If a person over the age of 60 joins a company and has not withdrawn his PF from his previous company, the new company can continue to deduct PF from his salary. The Employee Provident Fund Act 1952 does not specify an upper age limit for PF deduction.

Please note that these answers are based on the current laws and may change if the laws are amended. Always consult with a legal expert or the appropriate government department for the most accurate information.

Just to addition to above answers
Provident Fund (PF):
PF pension contributions cease in the PF records once an employee reaches the age of 58. However, both employee and employer contributions continue to be deducted and deposited into the PF account (excluding pension contribution). The employee can continue contributing to PF as long as they remain employed—the PF account remains active unless the employee separates from service. If the employee joins another organization, PF contributions can still continue under the new employer. Pension benefits can be claimed only after reaching the age of 58 irrespective of his continued server after the age of 58 yrs.

Gratuity for 'W' Category Employees:
Gratuity is payable even to 'W' category employees on fixed-term contracts, provided they complete 5 years of continuous service—whether on a contractual or regular basis. To avoid gratuity liability, it is advisable to give a break in service of at least 3–4 months before rehiring them as new employees.

I'll address your queries regarding the Payment of Gratuity Act, 1972, and the Employee Provident Fund Act, 1952.

Payment of Gratuity Act, 1972
Query 1: Eligibility for Gratuity
- Eligibility: Mr. X is eligible for gratuity from B & Co Pvt Ltd, as he has completed more than 5 years of continuous service.
- Previous Gratuity Payment: The gratuity payment from A & Co Pvt Ltd does not affect his eligibility for gratuity from B & Co Pvt Ltd.

Query 2: Calculation of Gratuity
- Calculation: The gratuity amount would be calculated based on Mr. X's last drawn salary and the number of years of service with B & Co Pvt Ltd.
- Statutory Ceiling: The gratuity amount is subject to the statutory ceiling of ₹30 lakhs (as per the amended Act).

Query 3: Gratuity Payment to Fixed-Term Contractual Employees
- Eligibility: Fixed-term contractual employees, like "W" grade employees, are eligible for gratuity if they have completed more than 5 years of continuous service.
- Calculation: The gratuity amount would be calculated based on their last drawn salary and the number of years of service.

Relevant Sections of the Payment of Gratuity Act, 1972
- Section 2(e): Defines "continuous service" as an employee who has worked for a period of not less than 5 years.
- Section 4: Specifies the calculation of gratuity based on the employee's last drawn salary and the number of years of service.
- Section 4(3): Specifies the maximum gratuity amount payable, which is currently ₹30 lakhs.

Employee Provident Fund Act, 1952
Query 1: PF Deduction after Retirement
- PF Deduction: B & Co Ltd cannot deduct PF from Mr. X's salary after the age of 60 years, as he has already withdrawn his PF accumulations from A & Co Ltd.
- EPF Scheme: The EPF Scheme, 1952, allows employees to withdraw their PF accumulations upon retirement or termination of service.

Query 2: PF Deduction for Regular Employees
- PF Deduction: It is compulsory to deduct PF for regular employees, even after attaining the age of retirement, if they are re-hired by the same employer.
- EPF Scheme: The EPF Scheme, 1952, requires employers to contribute to the PF account of employees, including those who are re-hired after retirement.

Query 3: PF Deduction for Newly Joined Employees above 60 years
- PF Deduction: It is not compulsory to deduct PF from the salary of employees who join the company above the age of 58 years, as per the EPF Scheme, 1952.
- Voluntary Contribution: However, the employee can opt for voluntary PF contribution, subject to the rules and regulations of the EPF Scheme, 1952.

Relevant Sections of the Employee Provident Fund Act, 1952
- Section 2(f): Defines "employee" as any person employed for wages in any kind of work.
- Section 6: Specifies the contribution rates for employers and employees.
- Paragraph 83 of the EPF Scheme, 1952: Specifies the conditions for withdrawal of PF accumulations upon retirement or termination of service.
- Paragraph 69 of the EPF Scheme, 1952: Specifies the conditions for employees who join the company above the age of 58 years [1].

Dear Community Member,

I appreciate your inquisitiveness regarding the Payment of Gratuity Act, 1972, and Employee Provident Fund Act, 1952, as they are critical for understanding the extent of benefits accorded to employees. I'll attempt to address your concerns in detail.

1. Regarding Mr. X's eligibility for gratuity from B & Co Pvt Ltd, as per the Payment of Gratuity Act, 1972, any employee who has completed five years of continuous service with an employer is eligible for gratuity. Therefore, Mr. X would be eligible for gratuity from B & Co Pvt Ltd, irrespective of his previous gratuity payment from A & Co Pvt Ltd.

2. The gratuity received from the previous employer (A & Co Pvt Ltd) does not affect the eligibility or calculation of gratuity at the subsequent employer (B & Co Pvt Ltd). The calculation of gratuity is based solely on the last drawn salary and years of service at the respective employer.

3. Fixed-term contractual employees are also eligible for gratuity, provided they have completed five years of continuous service. The calculation would be based on the last drawn salary and years of service. The statutory ceiling of ₹20 lakhs (now increased to ₹30 lakhs) applies to the total gratuity receivable from a single employer and not the cumulative gratuity from all employers. Therefore, if Mr. X is eligible for a gratuity of ₹15 lakhs from B & Co Pvt Ltd, the company is liable to pay the entire amount, irrespective of the gratuity received from A & Co Pvt Ltd.

4. Regarding the deduction of Provident Fund (PF) post-retirement, as per the Employee Provident Fund Scheme, 1952, an employee can continue to contribute to the PF even after the age of 60 years, provided he/she is in service and receiving salary. However, if the employee has already withdrawn the PF amount post-retirement from the previous employer, then the subsequent employer (B & Co Ltd) cannot deduct PF.

5. If an employee retires and is then re-employed by the same company (A & Co Ltd), the deduction of PF is compulsory as per the EPF Act, 1952.

6. For a new employee joining A & Co Ltd after the age of 60 years, the company can deduct PF only if the employee has not withdrawn the PF amount from the previous employer and wishes to continue the PF membership. However, the employer is not obligated to contribute to the PF of such employees.

Please note that this information is based on my understanding of the relevant laws and their typical application. For specific legal advice, I recommend consulting with a legal professional specializing in labor laws. I hope this information is helpful, and I'm here if you have any further questions.

Dear Sapna Verma,
The Fixed term employees are eligible for EPF and Gratuity,as well.
The gazette notifications is given below to understand the eligibility for Gratuity.
[[ MINISTRY OF LABOUR AND EMPLOYMENT
NOTIFICATION
New Delhi, the 16th March, 2018
G.S.R. 235(E) .– Whereas certain draft rules further to amend the Industrial Employment
(Standing Orders) Central Rules, 1946 were published, as required by sub-section (1) of Section 15 of the
Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), vide notification of the Ministry of Labour
and Employment number G.S.R. 17(E), dated the 8th January, 2018, in the Gazette of India, Extraordinary, Part
II, section 3, sub-section (i), for inviting objections or suggestions from the persons likely to be affected thereby
on or before the expiry of a period of thirty days from the date of publication of the said notification in the
Official Gazette;
And whereas the copies of the said Gazette were made available to the public on the 8th January, 2018;
And whereas the objections or suggestions received from the public on the said draft rules have been
considered by the Central Government;
Now, therefore, in exercise of the powers conferred by section 15 of the Industrial Employment
(Standing Orders) Act, 1946 (20 of 1946), the Central Government hereby makes the following rules further to
amend the Industrial Employment (Standing Orders) Central Rules, 1946, namely:-
1. (1) These rules may be called the Industrial Employment (Standing Orders) Central (Amendment)
Rules, 2018.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), in Schedule, in item 1, for
the words “fixed term employment workmen in apparel manufacturing sector;”; the words “fixed term
employment” shall be substituted;
3. In the Industrial Employment (Standing Orders) Central Rules, 1946,-
(a) after rule 3, the following rule shall be inserted, namely:-
“(3A) No employer of an industrial establishment shall convert the posts of the
permanent workmen existing in his industrial establishment on the date of
commencement of the Industrial Employment (Standing Orders) Central (Amendment)
Rules, 2018 as fixed term employment thereafter.”.
(b) in rule 5, for item (6A) and the entries relating thereto, the following item and entries shall be
substituted, namely:-
“(6A) Number of fixed term employment workmen;”;
(c) in Schedule 1,-
(i) in paragraph 2,-
(A) in sub-paragraph (a), for item (3A) and the entries relating thereto, the following
item and entries shall be substituted, namely:-
“(3A) fixed term employment workmen”;
(B) for sub-paragraph (h), the following sub-paragraph shall be substituted, namely: ‘(h) A “fixed term employment workman” is a workman who has been engaged
on the basis of a written contract of employment for a fixed period:
Provided that-
(a) his hours of work, wages, allowances and other benefits shall not
be less than that of a permanent workman; and
(b) he shall be eligible for all statutory benefits available to a
permanent workman proportionately according to the period of
service rendered by him even if his period of employment does
not extend to the qualifying period of employment required in the
statute’.;
(ii) in paragraph 13, for sub-paragraph (2), the following sub-paragraph shall be substituted,
namely:-
“(2) Subject to the provisions of the Industrial Disputes Act, 1947 (14 of
1947),-
(i) no notice of termination of employment shall be necessary in
the case of temporary workman whether monthly rated,
weekly rated or piece rated and probationers or badli
workmen; and
(ii) no workman employed on fixed term employment basis as a
result of non-renewal of contract or employment or on the
expiry of such contract period without it being renewed, shall
be entitled to any notice or pay in lieu thereof, if his services
are terminated:
Provided that the services of a temporary workman shall not be
terminated as a punishment unless he has been given an opportunity of explaining the
charges of misconduct alleged against him in the matter prescribed in paragraph 14.”;
(d) (i) in Schedule 1A, in paragraph 3,-
(A) in sub-paragraph (a), after item (iii), the following item shall be inserted, namely:-
“(iiia) fixed term employment;”;
(B) after sub-paragraph (d), the following sub-paragraph shall be inserted, namely:-
‘(da) A “fixed term employment” workman is a workman who has been engaged on the
basis of a written contract of employment for a fixed period:
Provided that-
(a) his hours of work, wages, allowances and other benefits shall
not be less than that of a permanent workman;
(b) he shall be eligible for all statutory benefits available to a
permanent workman proportionately according to the period
of service rendered by him even if his period of employment
does not extend to the qualifying period of employment
required in the statute.’;
(ii) in paragraph 13, for sub-paragraph (b), the following sub-paragraph shall be
substituted, namely:-
“(b) Subject to the provisions of the Industrial Disputes Act, 1947 (14 of
1947),-
(i) no notice of termination of employment shall be necessary in
the case of temporary and badli workmen; and
(ii) no workman employed on fixed term employment basis as a
result of non-renewal of contract or employment or on the
expiry of such contract period without it being renewed, shall
be entitled to any notice or pay in lieu thereof, if his services
are terminated:
Provided that a temporary workman, who has completed three months
continuous service, shall be given two weeks notice of the intention to terminate his
employment if such termination is not in accordance with the terms of the contract of
his employment:
Provided further that when the services of a temporary workman, who has not
completed three month’s continuous service, are terminated before the completion of
the term of employment given to him, he shall be informed of the reasons for
termination in writing and when the services of a badli workman are terminated before
the return to work of the permanent incumbent or the expiry of his (badli’s) term of
employment, he shall be informed of the reasons for such termination in writing.”.
[F.No. S-12011/1/2016-IR(PL)]
KALPANA RAJ SINGH OT, Jt. Secy.]]
Further, a mere clause of an erroneous agreement can not over ride the the Act and Rules. In this instant case the person kept on roll and subsequent occasion in contract renewed back to back without a service break is speaking of continuous service of five years. Thus, the person is eligible for Gratuity legally as a regular employee or as Fix term employment.
Similarly, An employee can be member under EPF but not to EPS after the age of 58. The matter has happened due to short sighted or influence not put forth in post.